Transcription of CAPITAL BUDGETING - Exam Success
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CAPITAL BUDGETING - Exam Success
CHAPTER. 2. CAPITAL BUDGETING . John D. Stowe, CFA. CFA Institute Charlottesville, Virginia Jacques R. Gagn , CFA. La Soci t de l'assurance automobile du Qu bec Quebec City, Canada LEARNING OUTCOMES. After completing this chapter, you will be able to do the following: Define the CAPITAL BUDGETING process, explain the administrative steps of the process, and categorize the CAPITAL projects that can be evaluated. Summarize and explain the principles of CAPITAL BUDGETING , including the choice of the proper cash flows and the identification of the proper discount rate. Explain how the following project interactions affect the evaluation of a CAPITAL project: (1) independent versus mutually exclusive projects, (2) project sequencing, and (3) unlim- ited funds versus CAPITAL rationing. Calculate and interpret the results produced by each of the following methods when evalu- ating a single CAPITAL project: net present value (NPV), internal rate of return (IRR), pay- back period, discounted payback period, average accounting rate of return (AAR), and profitability index (PI).
47 CHAPTER 2 CAPITAL BUDGETING J ohn D. S towe , CF A CFAI nstitute C harlottesville , Vginia ir J acques R. G agn é , CF A
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